Risk adjustment is used to move money from insurer pools that are relatively healthy to insurer pools that are relatively unhealthy. Diabetes is one of the most common chronic conditions in the Exchange pool and it is very common in the Medicare Advantage risk pools as well. The risk adjustment factors are calculated based on several years of data to determine the relative incremental cost of a disease state and then fitted to a general medical cost trend line.
From this morning’s post on the YMCA diabetes minimiziation program that is now a standard Medicare benefit, I think there is an opportunity for Medicare Advantage insurers to aggressively game risk adjustment by doing good because the risk adjustment factors will be overpricing the cost of diabetes for a year or two.
The new intervention was about $205 per person, a fraction of the original cost.
They estimate that if the Y program were expanded to all Medicare beneficiaries, the government might save about $2,650 per participant over 15 months, much more than the program cost.
Why is this?
To qualify for the program, an individual’s A1C levels had to be high enough to justify a diagnosis of pre-diabetes. Quite a few individuals will get a diagnosis of uncomplicated type 2 diabetes. The old risk adjustment factors covered the cost of traditional treatments so that over a large enough population, diabetes is a break-even proposition for Medicare Advantage insurers. Those risk adjustment factors don’t change that quickly. So if the Medicare Advantage insurers can set up diabetes coaching programs similar to the YMCA program that produce somewhat similar results in the very near future, they’ll still be getting risk adjustment payments for higher cost traditional treatment even as the lifestyle training and coaching through the Y leads to better results and much lower costs. This is a short term opportunity to get outsized profits from diabetes as each year going forward replaces a traditional diabetes experience year with a year of traditional plus lifestyle coaching experience year which should lead to a lower risk adjustment factor.
In a couple of years, insurers that still only pay for traditional and less effective diabetes management will be getting risk adjustment payments for their diabetic population that are far less (because it is based on coaching costs as a primary treatment regime) than their actual medicalized costs of treatment.